Proactive Versus Reactive Strategies

When developing new products, one strategic choice can particularly be tricky to take. This is the choice wether your product shall be the first (in its category) in the market (proactive strategy), or if a reactive strategy is likely be more successful.

Example for products that follow a proactive strategy are the iPad (Apple), the first car (Benz), or SAP’s R/3. All these products where the first products in the market, which sometimes even defined a category. Examples for follower products (products following a reactive strategy) would be the Google search engine, or the Ford A-Model.

The answer to the question, which strategy is the best, is not so simple to give, as it might seem to be. At least in terms of financial results sometimes a proactive strategy might be the strategy of choice, sometimes it is not, but the reactive strategy is superior.

Literature

Following the literature (I am using Frank R. Kardes, Consumer Behavior and Managerial Decision Making (Pie), 2nd international ed), the following factors should be considered in deciding when to use reactive strategies, or when to use proactive strategies:

• Growth Opportunities: Normally, proactive strategies work perfectly for new high-growth markets that are responsive to new product innovation, as these markets demand for diversification.
• Protection for Innovation: The company, which enters the market as first allows others to copy the idea. Thus, a high level of protection of interlectural property speaks in favor of a proactive strategy (and vice versa)
• Market size and margin: The company, which enters a large market as first, can achieve economies of scale, and thus a higher ROI. However, this requires a market, which is sufficiently large. Thus, proactive strategies work well with large markets, while reactive strategies work with small markets. This on the other hand requires that the company is sufficiently large to address the market.
• Competition. To attack one strong competitor in a shrinking market, is less likely to succeed than to face several competitors in a growing market. Thus, the sales potential (potential size of the market), and the penetration of competitors predetermines if you can run a proactive strategy, or a reactive strategy.
• Position in the distribution channel: To be able to be successful with a proactive strategy, you need to make sure that you are able to position your product properly. This on the other hand requires that you have access to these customers, and a particular position in the distribution channel.

Experiences

In my experience it might be worthwhile to work on a larger strategy, which considers all available options:

• Customer intimacy: Most of our current markets are somehow defined. It it thus not easy to find green fields, which you could target with a proactive strategy. To identify a product area, which might be worthwhile to develop, you first need to study the market very carefully. This requires that your company has a deep relation to customers, and potential customers.
• Positioning: In several cases you will find that it partly depends on your definition, if a market can be addressed with a proactive strategy, or not. Consider the situation where a competitor is on the market. If you now intend to enter the market with a practive strategy, an option would be that you redefine the market in a way that the customers gain a different view to their needs (i.e. with a disruptive product)
• Interlectual Property Rights: It is helpful that you constantly work to protect your interlectual property. However in the sense of a strategy, you should also check if you could achieve other competitive advantages that are not easy to copy. Examples could be loyal employees, or particular production capabilities.
• Partnering: If your company lacks the size to cover a market by means of a proactice strategy, partnering might be a strategic option. In such scenario would you partner horizontally, or vertically, while you are able to cover a larger market.

Further Information

In the following articles can you find additional information about the topic:

• → Innovation and Patents
• → Innovation and Creativity

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This entry was posted on Montag, August 9th, 2010 at 7:00 pm. It is filed under PM-Themen, Thema des Tages and tagged with Consumer-Strategies, Corporate Strategy, English Content, Product-Concept, Strategie. You can follow any responses to this entry through the RSS 2.0 feed.